World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Wednesday, May 13, 2009

Well not so good if you were long at yesterday’s close, here’s the overnight action, you can see some cliff diving this morning as economic reports came in worse than expected. Bonds are shooting higher, the dollar is about flat, gold is down, and the /ES fell all the way from the 912 pivot area that stopped the advance last night to about the 889 level:

So, we learn that the ECB is going to up the ante on their quantitative easing! That’s NOT good, that’s the circle I’ve described in a couple of articles where once you start you get into an ever escalating circle. The U.S. is also heading in that direction, very bad and very sad.

May 13 (Bloomberg) -- Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that the rising unemployment rate is prompting consumers to boost their savings.

The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Excluding auto dealers, sales fell 0.5 percent.

Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years, analysts said. As long as the biggest part of the economy is constrained, any recovery from the worst recession in at least half a century is likely to be subdued.

“The consumer remains in a difficult situation,” Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, said in a note to clients before the report. “It remains unclear how they will proceed forward as credit access fades alongside further home price deterioration and an increasingly difficult financial environment.”

Not improving and worse than “expected.” But only by the people who cannot see that the consumer is SATURATED with debt and that all the government’s reaction to give the consumer’s money away to the banks (robbery & theft) cannot help the situation we’re in, it can only worsen it. So keep buying those greenshoots, because they need to steal your money, they don’t have it all… YET.

And speaking of consumers that are on the verge, we have also known that a second wave of foreclosures is coming and that this wave will be much worse than the subprime wave because they are on the higher end homes as all those option arms reset. We are right at the beginning of that wave now.

A record number of foreclosure filings took place during April, but the number of repossessions fell 11%.

NEW YORK (CNNMoney.com) -- Foreclosures in April exceeded even March's blistering pace with a record 342,000 homes receiving notices of default, auction notices or undergoing bank repossessions, according to a regular industry report.

One of every 374 U.S. homes received a filing during the month, the highest monthly rate that RealtyTrac, an online marketer of foreclosed properties, has recorded in four-plus years of record keeping.

"April was a shocker," said Rick Sharga, a spokesman for RealtyTrac. "I would have bet on a dip because March foreclosures were so high.

Instead, filings inched up 1% from March and rose 32% compared with April 2008.

There were 63,900 bank repossessions, the last stop in the foreclosure process. More than 1.3 million homes have now been lost to foreclosure since the market meltdown began in August 2007.

The increasing foreclosures will force RealtyTrac to rethink its forecasts, according to Sharga. "We had been predicting 3.4 million filings for the year," he said, "but we'll blow those numbers out of the water."

The lion's share of April's filings were ones in the early stages of the process, such as notices of default, according to James Saccacio, RealtyTrac's CEO.

And guess what? Ben isn’t doing as good a job at keeping rates low as the public seems to think:

May 13 (Bloomberg) -- The highest inflation-adjusted borrowing costs since the 1980s are hindering U.S. companies’ ability to build their businesses.

Customers of Airgas Inc. are reducing purchases of industrial gases such as nitrogen and acetylene because of rising real interest rates, said Chief Executive Officer Peter McCausland. Real rates account for inflation or deflation.

“There is no question” high real rates have aggravated Airgas’s sales decline, he said in an interview.

Annualized consumer prices fell by 0.4 percent in March, the first decline in 54 years, and Treasury yields jumped to a five-month high. That pushed real investment-grade corporate borrowing costs to 8.34 percent, the highest level since 1985, according to data compiled by Bloomberg and Merrill Lynch & Co. Price declines accelerated in April to 0.6 percent, according to 28 economists surveyed by Bloomberg.

Rising real yields may deter companies from borrowing to invest in new products or factories because deflation will erode cash flow and make it harder to service debt, said John Lonski, chief economist at Moody’s Capital Markets Group in New York.

Deflation Hurts“That’s almost guaranteed to delay an economic recovery and perhaps very much risks intensifying the current economic slump,” Lonski said in a telephone interview.Deflation hurts businesses in two ways. First, it suppresses sales. When prices are falling, buyers have reason to delay purchases and wait for a better deal.

The second way deflation hurts is by increasing real interest rates, making borrowing more expensive. A $100,000 loan at a 5 percent rate with 2 percent deflation translates into a real yield of 7 percent. When prices are going up, the opposite happens. If inflation is 2 percent, the real rate on that loan is 3 percent.

“Deflation hurts borrowers and rewards savers,” said Drew Matus, senior economist at Banc of America Securities-Merrill Lynch in New York, in a telephone interview. “If you do borrow right now, and we go through a period of deflation, your cost of borrowing just went through the roof.”

Ahhhh, I don’t hear talk of inflation in there, I hear talk of deflation. We’re going to get the PPI and then CPI later this week, those will be important.

So, we now have a broken rising wedge on both the SPX and DOW. Gee, I hope you’re not long, because that’s the queue I’ve been waiting for and we’re below 900 again (I would not stay short above 903). The 30 minute fast stochastic finished yesterday overbought and so it has room to fall. The 60 minute is midpoint and the daily is just issuing a sell and coming out of overbought, except for the NDX which is over half way to oversold.

The next lower pivot is at 848, the 23.6% is at 869, the 38.2% is at 830 and the 50% is at 799. Rising wedges typically retrace to their BASE. With all the monkey business, this may not be typical, however, so again be careful. McHugh believes that a descent now means higher later. Maybe… but I wouldn’t count on that – at all.

So, now we have expectations that are set much too high and what appeared as greenshoots really were just the usual spring optimism over hyped by a criminal financial industry and fanned by a complicit media and government – all designed to separate you from your life’s labors/ dollars.

The debt has America and the World in a stranglehold, and we’re not going to get out of it until we force the central bankers out of the country and separate corporations and their money from state: